Deliveroo Founder’s $618 Million Fortune Hit by Low-Pay Protests

(Bloomberg) -- Will Shu, who started Deliveroo Holdings Plc after resorting to late-night supermarket trips for his dinner while working at Morgan Stanley’s London office, will have a stake worth at least 449 million pounds ($618 million) when the food-delivery company goes public this week. But he’s found a frostier reception in the City of London than he might have expected.

The business’s success during the Covid-19 pandemic lockdowns and upcoming initial public offering have led to a backlash over gig-economy exploitation and workers’ pay, including the threat of strike by riders. There’s even been fallout on the IPO, with some big-name investors staying away.

Shu insisted on listing the shares in London, where the company was started, even though some of his advisers tried to convince him to take the startup to New York, a person familiar with Shu’s thinking said. It should have been a hit with post-Brexit Britain. The government is working hard to keep home-grown companies from fleeing to U.S. markets, and is weighing rules to encourage more blank-check companies and dual-class share structures popular across the Atlantic.

Criticism from some fund managers -- citing concerns that its treatment of couriers wasn’t socially responsible -- caught Shu off guard, the person said, asking not to be identified because the conversations were private. He’s lobbied publicly for a change in U.K. law that would let the company offer perks like insurance without changing riders’ self-employed status.

The company priced the IPO at 3.90 pounds per share on Tuesday. While that’s at the bottom of the range it initially pitched to investors, it will still make Deliveroo one of the U.K.’s largest listed technology companies.

And the 41-year-old Shu, who’s done everything from handing out fliers in a kangaroo costume to delivering food at night after a full day at the office, is set to be the biggest winner from the 1.5 billion pound share sale, which values the business at 7.6 billion pounds.

Shu is immediately offloading Deliveroo shares worth about 26 million pounds in the listing, and has options currently valued at about 104 million pounds that are scheduled to vest between now and 2028, filings show.

“We see this IPO as an opportunity to really push that we need rights or we need the respect from this company,” said Ethan Bradley, 27, a Deliveroo courier based in York, England, who’s one of hundreds expected to refuse to make deliveries next week after the company lists.

Some riders have complained that they make less than minimum wage on the app. A representative for Deliveroo said that riders can earn 13 pounds per hour on average during busy times and that overall satisfaction is at an “all time high.” People who work on the platform value flexibility most, he said. For the IPO, Deliveroo said it has demand for all of its shares and the deal is covered multiple times, though the company is choosing to “price responsibly.”

First Rider

Shu founded Deliveroo in London 2013 after finishing business school at Wharton. He’d been shocked by the lack of delivery options during his banker days in London compared with New York -- where even in the early 2000s before internet ordering took off more restaurants delivered.

He set up the company with software developer Greg Orlowski, who Shu described as a lifelong friend in Wharton’s alumni magazine, starting out with only a handful of restaurants in the U.K. Shu took on a lot of jobs himself in the early days. He was the company’s first rider and was known for showing up to meetings in shorts after working up a sweat delivering food. Early investors were impressed with his work ethic.

“When I commented on his attire he responded by saying it was more comfortable in the summer weather as he had been doing deliveries all morning,” said Adam Valkin, a managing director at Deliveroo investor General Catalyst, who met a casually dressed Shu at a conference several years ago. “He has kept this attitude.”

One night, Shu found himself delivering food to a former colleague from a hedge fund, who didn’t know about his startup.

“He was like ‘Will, are you OK?’,” Shu said in an interview at the Startup Grind conference in 2016. “I was kind of shocked. I didn’t know what to say. And he was like, ‘Well, if you need anything let me know.’ So he just thought I went nuts.”

Dark Kitchens

The company now has more than 100,000 riders worldwide, and has grown to operate in almost 1,000 locations, focusing on mid-tier restaurants such as Gourmet Burger Kitchen. Deliveroo will use the proceeds from the IPO to expand its new business lines, like Editions, which creates delivery-only dark kitchens in neighborhoods that the company’s data indicates could use a particular cuisine, and its Deliveroo Plus subscriptions.

The company was one of the winners from the Covid-19 lockdowns, with transactions on the platform growing 64% in 2020 as customers stuck at home ordered meals and groceries on the app. That marks a turnaround from the beginning of the pandemic, when the company said it risked running out of cash as it tried to convince regulators to let Amazon.com Inc. buy a stake, saying it needed the funds to stay viable.

But it’s the unraveling of the gig economy model in the U.K. that’s potentially the biggest threat to future growth. Rival Uber Technologies Inc. recently gave its 70,000 British riders access to minimum wage guarantees and vacation pay after losing a case in the Supreme Court. Deliveroo has listed challenges to the way it classifies its riders as a major threat in its prospectus.

Labor issues are “probably the major downside risk for this business model,” said Ioannis Pontikis, a European consumer analyst for Morningstar Inc. “I don’t foresee this happening at the same time across all countries, so it’s not an existential type of threat for the business model, but there are huge implications for unit economics and valuation.”

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